The Money Spy website

Welcome to The Money Spy....This is where we will be posting articles, latest news updates, opinions, prompting discussions or just about anything interesting related to finance. If you would like to contact us then call 01892 506970 or email info@themoneyspy.net

Eurozone still in recession, but is that a hint of promise from Greece?

The recession continues, but maybe there were a couple of bits of good (ish) news lurking in the latest data on the economies that make up the Eurozone.

The Eurozone is still in recession. GDP contracted by 0.2 per cent in Q1 of this year, according to data out yesterday. The region has now contracted for six quarters on the trot.

Germany and Belgium both expanded, but of the region’s major economies they were the only ones to see growth. The growth was nothing special either – 0.1 per cent in both cases. To put that in context, Germany contracted by 0.7 per cent in the final quarter of last year.

France contracted by 0.2 per cent, Italy and Spain both by 0.5 per cent, Portugal by 0.3 per cent, and the Netherlands by 0.1 per cent. In Austria the economy was flat. Ben May, European Economist at Capital Economics, said: “We still think that the consensus forecast of a 0.4 per cent fall in euro-zone GDP this year is too optimistic and expect something closer to a 2 per cent decline.”

Chris Williamson at Markit said: “The worse than anticipated start to the year will clearly worry policymakers at the ECB. The central bank has already responded to signs of a renewed weakening in the region’s economy, cutting its main policy rate to a record low of 0.5 per cent on 2nd May, but today’s data will add to calls that more action is required beyond what many see as a token gesture of a rate cut. The focus is turning to how the ECB might possibly emulate recent successful-looking efforts by the Bank of England to stimulate lending to small and medium sized companies.” The news on Greece, however, is oddly encouraging. Then again, everything is relative.

The Greek economy contracted by 5.3 per cent in Q1 over the same period last year. You might not think that is very good. But in fact that was the smallest contraction in Greece since the third quarter of 2011. Furthermore, credit ratings agency Fitch, recently upgraded Greece.

Then again, with unemployment at 27 per cent, further austerity yet to take its toll, and lending to businesses and households still falling, there are still reasons to be cynical about such optimism.

Capital Economics has long been predicting the partial break-up of the euro. It concedes that thanks to better than expected data on Greece, the chance of this happening imminently is “zero”. It still reckons a Greek exit is possible in a few years’ time, however.